CSG Law Alert: One Change That FINRA Should Make as Part of “FINRA Forward” to Immediately Improve Its Enforcement Program
Recently, we got a call from a broker who had received a notice from FINRA directing him to appear for testimony. This, in and of itself, is not unusual—FINRA sends hundreds of such notices every year. But this notice sought testimony in connection with an investigation that FINRA had opened in 2018. In other words, FINRA opened a matter, waited more than seven years to first contact the broker, and then, out of the blue, sent him a demand to appear for testimony within two weeks.
At this point, you may be asking yourself, how is this even possible? Isn’t there a statute of limitations that would prevent FINRA from waiting seven years to start asking questions? The short answer is yes, and no.
There is, of course, a statute of limitations. It provides that federal regulators, including the SEC, cannot bring an enforcement action seeking a fine or other penalty unless the action is brought within five years from the date when the claim accrued.1
To date, however, FINRA has taken the position that this law does not apply to it. But how can FINRA, who is overseen by the SEC, not be bound by the same restrictions as its overseer?
Further, FINRA can, and often does, charge brokers with violating SEC rules and regulations, which creates a bizarre (but very real) possibility that the SEC could be time-barred from bringing an action charging a violation of an SEC regulation but FINRA could bring the very same action without adhering to any statutes of limitation.
Even if FINRA is technically correct that the federal statute of limitations for charging securities law violations does not apply to it, FINRA does have an obligation to provide a fair process for disciplining its members. The Maloney Act, which authorized the creation of self-regulatory organizations (“SROs”) such as FINRA, explicitly conditioned that authorization on each SRO providing “a fair procedure for the disciplining of members and persons associated with members.”2
So, the question is whether a statute of limitations is a prerequisite to a “fair” disciplinary process. According to the U.S. Supreme Court, the answer is yes.
More than 200 years ago, then-Chief Justice Marshall emphasized the importance of statutes of limitations, stating that it “would be utterly repugnant to the genius of our laws” if actions for penalties could be “brought at any distance of time.”3
More recently, Chief Justice Roberts, writing for a unanimous Supreme Court, explained that statutes of limitations are “vital to the welfare of society” because they “promote justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared.”4 Justice Roberts added, “even wrongdoers are entitled to assume that their sins may be forgotten.”5
In sum, (1) FINRA is obligated by statute to provide a fair disciplinary process, and (2) the Supreme Court repeatedly has held that statutes of limitations are an essential element of a fair disciplinary process.
Perhaps FINRA could argue that the Supreme Court’s words do not apply to it as a non-governmental (or quasi-governmental) self-regulatory organization. But that begs the question: Why would a self-regulatory organization not provide its members with at least the same basic rights and protections as federal regulators?
For the last six months, FINRA’s senior leaders have toured the country under the banner of the “FINRA Forward” initiative, emphasizing that it is a new day for FINRA and that FINRA wants to work with its membership to protect investors and the markets, not against them. In July of this year, FINRA’s CEO, Robert Cook, announced that, as part of FINRA Forward, it was launching a new initiative to develop “meaningful, common-sense improvements” to its enforcement program.6 Mr. Cook wrote:
That’s why enforcement is an important focus for FINRA Forward . . . FINRA enforcement should work effectively and efficiently as an integral part of our broader oversight program. And it should afford member firms and their associated persons a transparent, fair, and consistent process.7
In keeping with this laudable goal, FINRA should immediately announce a new policy—that its enforcement staff will not bring any charges that would be time-barred if brought by the SEC.8
1 28 U.S.C. § 2462.
2 15 U.S.C. § 78o-3(b)(8) (emphasis added).
3 Adams v. Woods, 6 U.S. 336, 342 (1805).
4 Gabelli v. S.E.C., 568 U.S. 442, 448-449 (2013) (internal citations omitted).
5 Id.
6 Robert Cook, FINRA Forward in Enforcement, FINRA News Blog, July 25, 2025, https://www.finra.org/media-center/blog/finra-forward-in-enforcement.
7 Id.
8 If FINRA does not voluntarily agree to adhere to the same statutes of limitations that govern disciplinary proceedings brought by the SEC, at least when charging violations of SEC rules, the SEC could direct FINRA to do so. See 15 U.S.C. § 78s(c) (“The Commission, by rule, may abrogate, add to, and delete from . . . the rules of a self-regulatory organization . . . as the Commission deems necessary or appropriate to insure the fair administration of the self-regulatory organization, to conform its rules to [the] requirements of this chapter and the rules and regulations thereunder applicable to such organization, or otherwise in furtherance of the purposes of this chapter . . . .”).